Embedded Files
Currencies Futures Options vis-a-vis equity options
- Ask/bid spread is lower than that of equity options.
- Commissions don't eat away at the equity when sellers of fx options make adjustments.
- World's major currencies are far less volatile than the stocks and have a predictable trading range and mean-reversion patterns.
- Currency options trader does not need to do any particular research and acquire skills to read balance sheets.
- In terms of market risk, FX options are more sensitive to macroeconomic factors than stock or futures options. Political and/or economic factors play a large role on the view of currencies.
- Stock options, while still affected by macro economic conditions, are also influenced by company specific variables such as earnings reports, downgrades, sector sentiment etc.
- Equity options trader has to cope with pre-open and post-close gap trading tantrums, earnings, dividends, mergers or takeovers, bankruptcies, various accounting and performance ratios and matrices. Too many elements causing surprises.
- Currencies' transactions volume is said to be 40 times more than that of all global stocks market combined. Unlike the stock market, the CME Globex currency future options market is open on business days five times in a week and 23 hours a day (excluding 5 - 6 pm USA time break).
If you thought the equity market looked calm at the moment, it can’t hold a candle to foreign exchange, where levels of volatility are hovering around their lowest levels since 2014. - Peter Wells in New York MARCH 20, 2019 - Financial Times
If you thought the equity market looked calm at the moment, it can’t hold a candle to foreign exchange, where levels of volatility are hovering around their lowest levels since 2014. - Peter Wells in New York MARCH 20, 2019 - Financial Times
The VIX index measures the expectation of stock market volatility over the next 30 days implied by S&P 500 index options. The current VIX index level as of April 11, 2019 is 13.02.
The VIX index measures the expectation of stock market volatility over the next 30 days implied by S&P 500 index options. The current VIX index level as of April 11, 2019 is 13.02.
Using end-of-day data, equity indices exhibit about double the amount of volatility than the major currency pairs. Take a look at these statistics. 9.5 years of data was used to compile the below - from the 3rd January, 2000 to 5th August 2009. calculated both 30 day and 100 day historical volatility and then averaged this across all data sets.
The 3 stock market indices averaged 26.26% while the 15 currency pairs averaged 12.14%. Given that currency volatility is, on average, almost half that of an equity index, you could assume that option premiums are relatively half as cheap also.
Here's the summary from optionstradingtips.com:
Page updated
Report abuse